Margin Loans

Buying power: The maximum dollar amount of marginable securities that an investor can purchase or sell short without having to deposit additional funds.

Cash Account: An account in which all securities purchased must be paid for in full.

Collateral: Assets pledged to guarantee a loan, and which may be collected in case of default. In a margin account, the marginable securities serve as collateral.

Concentrated Account: A concentrated account is formed when one single position is equal to or greater than 60% of the total marginable market value of the account.

Day Trade: The purchasing and selling, or the short-selling and purchasing, of the same security in the same trading day within a margin account.

Day Trade Call: Demand from the brokerage firm to the investor for additional funds because the investor has exceeded the day trade power given to him/her for the day.

Equity: The portion in an account that reflects the investor’s ownership interest.

Good Faith Violation: Good Faith Violations occur when the purchase of a security is subsequently sold using funds that have yet to settle into the account. Trades placed in a cash account require 3 business days for the funds to fully settle before they can be used again to buy and sell.

Each account is allowed to have up to 3 Good Faith Violations per year before the account is put on a 90-day restriction on the 4th strike. Each Good Faith Violation will automatically expire after 12 months from the violation date.

House Call: Same as Margin Call.

Initial Margin Requirement: The percentage of equity that must be deposited to purchase a position on margin.

Liquidation: 1.) Closing out a position; 2.) An action taken by the Margin Department when a client hasn’t paid for a purchase/or covered a call.

Maintenance Call: Same as Margin Call.

Maintenance Requirement: The minimum amount of equity a brokerage firm requires to maintain a margin account.

Margin: Purchasing securities with money borrowed from a brokerage firm.

Margin Account (Stocks): A leveraged account where the brokerage firm lends the account owner a portion of the purchase price for certain securities. The loan in the margin account is collateralized by the stock and if the value of the stock drops, the owner will be asked to either put in more cash or sell a portion of the stock.

Margin Buying Power: In a margin account, the maximum dollar amount of marginable securities that the client can purchase or sell short without having to deposit additional funds.

Margin Call: A demand upon a customer to deposit money or securities with the brokerage firm when the value of the securities purchased on margin falls below the allowable level.

Margin Requirement: The percentage of equity that must be deposited or maintained to purchase or hold a position on margin.

Marginable Securities: Securities that can be purchased on margin or used as collateral for a margin account.

Pattern Day Trader: An investor who executes 4 or more round-trip day trades within any 5 successive business days while these same day trades make up at least 6% of the customer’s activity for that period.

Settle: The official transfer of the securities to the buyer's account and the cash to the seller's account.

Settlement date: The date by which an executed securities transaction must be settled, by paying for a purchase or by delivering a sold asset; usually 3 business days after the trade was executed (T+3).

90-Day Restriction: Once the account is placed under a 90-day restriction, the account can only use settled funds to place a buy order. To know how a 90-day restriction appears, click here.


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